Insurance was first recognised by the legal system in the Kingdom of Saudi Arabia (KSA) following the enactment of the "Law of Control of Cooperative Insurance Companies" (Insurance Law) in 2003. The enactment of the Insurance Law was followed by a number of further positive developments resulting from amendments to the Insurance Law and the publishing of enabling regulations.
One of the most important developments was the establishment of a specialist forum for the resolution of insurance disputes, which has resulted in KSA now perhaps having the best forum for insurance dispute resolution in the GCC. Notwithstanding the positive developments with respect to insurance dispute resolution, subrogated recoveries in KSA remain poorly understood, particularly by international re/insurers that are accustomed to the approach in other jurisdictions. This note therefore seeks to provide further insight into subrogation in KSA.
The Insurance Law and subrogation
Article 20 of the Insurance Law gives express recognition to a KSA insurer's right to bring subrogated recovery actions. Not only does Article 20 specifically recognise the right of subrogation, but since an amendment in 2012, the Insurance Disputes Committee (IDC) has become the court with jurisdiction over all disputes arising from insurance contracts. Article 20 expressly notes that this jurisdiction includes subrogated recovery actions.
The extension of the IDC's jurisdiction to cover subrogated recoveries is important as subrogated recoveries are now decided by a specialist insurance committee, rather than before KSA's Shari'a courts or the Board of Grievances.
There are limited formalities prescribed by KSA law in relation to subrogation, with the exception that the Insurance Law's implementing regulations expressly require the insured to authorise its insurer before a recovery is commenced. The implementing regulations require the authority to be contained in a written document such as a subrogation form, settlement agreement or power of attorney.
A subrogated insurer will, on the basis of the subrogation form, commence proceedings in its own name. In the circumstances, it will be apparent that the effect of a subrogation agreement under KSA law is perhaps more analogues to an assured assigning its right to recover the indemnity payment from the third party.
The importance of a subrogation agreement
The IDC's approach to the recognition of a subrogated insurer's rights has the effect of limiting the insurer's rights to those the insured would have had against the third party. The insurer is also only entitled to exercise its insured's rights to the extent such rights have been transferred (and are capable of transfer) pursuant to the agreement between the insured and its insurer. The effect is that, for example, an insurer's claim against the third party will become time-barred at the same time as the insured's right to claim.
The codified Insurance Law does not provide any express obligation requiring insureds to assist insurers with subrogated recovery proceedings. In practice subrogation forms customarily are used to detail the parties' obligations during a recovery. Subrogation forms are therefore critical to successful recoveries as, not only does the subrogation form ensure that the insurer has standing to recovery the indemnity, it also ensures that the parties' expectations regarding the assistance to be provided during subrogated recovery proceedings are clear. As a consequence, most subrogation forms drafted for use in any other jurisdictions would not be suitable for use in KSA, as the forms fail to deal with the procedural and evidentiary issues that should be taken into account to successfully advance subrogated recoveries before the IDC.
The IDC has branches in Riyadh, Dammam and Jeddah. An insurer, seeking to commence subrogated recovery proceedings, can issue proceedings in the branch of the IDC with jurisdiction. Jurisdiction will be determined on the basis of the defendant's domicile.
Once the claim is registered, the third party defendant is notified of the proceedings, thereafter the file is transferred to the IDC for its review.
Hearings before the IDC differ from the approach followed before the other courts in the region. Unlike other regional courts, the IDC is a specialist tribunal and disputes are heard and decided by a three member committee chaired by a committee member with a legal background, with the other committee members being drawn from the insurance industry. The hearings themselves involve oral argument (in Arabic) from the parties' representatives.
A further departure from the regional approach is that the IDC will award the prevailing party its legal costs. An IDC cost's award is calculated on the basis of a tariff of "average" legal rates calculated by the IDC. This is a welcome innovation by the IDC considering that recoveries involving technical claims can be expensive.
There has been a steady increase in subrogated recovery claims being brought before the IDC. It is likely that this trend will continue for the foreseeable future with more insurers becoming aware regarding the possibility of bringing proceedings before a specialist insurance dispute resolution committee.
Despite KSA insurers now more regularly seeking to bring subrogated recovery claims, the laws recognising subrogation still contain limited detail regarding the parties' rights and obligations during subrogated recovery proceedings. Insurers seeking to make subrogated recoveries will therefore be well advised to obtain the input from lawyers that regularly appear before the IDC to ensure that any claim settlements are documented in such a manner that the parties' obligations during a recovery are clear, and that all rights necessary for a subrogated recovery claim to be brought before the IDC are transferred.